Income Tax Appellate Tribunal - Ahmedabad
Baid Narrow Fab.Pvt.Ltd.,, Surat vs Department Of Income Tax
IN THE INCOME_TAX APPELLATE TRIBUNAL " D " BENCH,
AHMEDABAD
BEFORE SHRI Deepak R. Shah AND SHRI D.T. Garasia.
ITA No. 3484/Ahd/2007
(Assessment Year:2004-05)
(CAMP AT SURAT)
The Deputy Commissioner Vs M/s.Baid Narrow Fab.Pvt.Ltd.,
of Income-tax,Circle-1, 2/4569, Airlon House, lst
Room No.108, Floor, Sagarampura,
Aayakar Bhavan, Majura Surat.
Gate, Surat.
(Appellant) (Respondent)
PAN: AAACB0827H
Appellant by : Shri Kumar Hrishikesh,Sr.D.R.
Respondent by : Shri J.P. Shah.
(आदे श)/ORDER
)/ PER: SHRI D.T. GARASIA.
The only ground in this appeal is as under:-
"On the facts and circumstances of the case, the learnedCIT9A) erred in deleting the addition amounting to Rs.16,75,380/- made on account of excess consumption of yarn."
The short facts of the case that assessee company is engaged in the manufacturing and trading of narrow fabrics i.e. to say ribbon. During the year under consideration the assessee has shown the sales of Rs.2,87,37,117/- and gross profit of 25.06% as compared to last years sales of Rs.3.56 crores and G.P. of 25.57%. The A.O. found that assessee has not maintained day to day quantity records in respect of raw mateials used such as yarn, colour-chemical, packing materials. In 1 absence of details of monthwise consumption vis-à-vis production and also value of closing stock reflected in trading account remained unverifiable. The assessee has produced the Excise Register which is maintained as per the Excise Law but the register was not mentioning about particular quality and quantity of yarn issued for production and after consumption, particular quality and quantity manufactured. The A.O. was of the view that the sale bill mention only of quality with reference to width of ribbon but quality in terms of thickness not mentioned which play an important role in deciding the value of ribbon sold. The assessee was given a show cause notice and assessee explained that there was increase in manufacturing expenses by 1.92% whereas there was a decrease of cost of goods sold by 1.41% and thus there was a net fall in G.P. by 0.51%. The A.O. further contended that the cost of goods has been increased by 10.24%. The A.O. observed that although quantity-wise there was not much difference in this year and production of last year but the turnover has been decreased substantially which has been stated because of fall in selling rate and the A.O. was of the view that actually excess consumption of yarn any reason for fall in G.P. Therefore, the AO tried to explain the increase of 8.2% consumption of raw material and increase of 1.92% in manufacturing expenses. The A.O. was of the view that fall in G.P. was only because of consumption of yarn being on higher side which was more by 8.33% compared to last year. Therefore, the A.O. was of the view that there was excess consumption of 11.967 kgs. As per the chart workd out by the A.O. and since the cost of yarn per kg was Rs.140/-, therefore, he made addition of Rs.16,75,380/-.
2. The matter carried to the C.I.T.(A) and the C.I.T.(A) has deleted by observing as under:-
2" I have considered the submissions made by the appellant and observation of the A.O. The entire addition made by the A.O. is based on:-
Decrease in G.P. from 25.57% in the last year to 25.06% in the current year i.e. a fall byvery small percentage of 0.51% Decrease in yield represented by excess consumption of yarn as is clear from point No.IV on page-5 of the assessment order. According to the A.O. the consumption of yarn in quantity terms was more during the current year because in the last year the yarn consumed was 0.0024 kgs. per metre of production whereas in the current year the yarn consumed is 0.0026 kgs. per metre of production representing an increase of 8.33%. According to the A.O. this represents an excess consumption of yarn of 11967 kgs.
There are variations in the consumption of yarn, electricity etc., from month to month as is clear from chart No.7 on page-6 of the assessment order.
However, the appellant has rebutted all these points bysaying that-
The marginal decrease in GP of 0.51% is fully explained because as the AO has admitted that there is a fall in the sale price in a number of items which the A.O. has reproduced in point No.V on page-5, where the AO has stated that the sale price has decreased by almost 25% as compared with last year. The appellant has further argued that during the year the consumption of yarn is more than the last year because during the year the production of double face ribbon was greater than 3 last year. The double face ribbons are thicker and consume higher quantity of yarn than the single face ribbon. It has also been argued that the comparison of consumption of yarn per metre of production cannot give a correct figure because the ribbons are different widths like 3 mm, 6mm,10mm, 12mm, 25mm, 37mm, 50mm etc. One metre ribbon of 50 mm width. Therefore, the consumption of yarn per metre of production can never be compared.
The appellant has argued that the AO has not been able to find any specific defect and has not rejected the books of accounts and therefore, has not invoked the provisions of section 145 and therefore, has accepted the books of accounts. Nowhere in the assessment order have the books of accounts been rejected.
The appellant has also pointed out mistake in calculation of increase in consumption per metre at point No.III on page-5 because the consumption has been taken in rupees whereas the production has been taken in metres. Since the price of the raw material keeps changing, no comparison can be made by taking the one quantity in rupees and another quantity in metre. The appellant has further pointed out that the AO has adopted the production at an intermediate stage. The correct figures of completed production for current year is 5,99,05,009 metres and not5,98,36,151 metres. Similarly, for the last year the correct figure is 5,52,42,937 metres and not 5,97,33,132 metres because the figures adopted by the AO pertain to intermediate stage and not final finished product stage. The appellant has further pointed out that if the comparison of production of ribbon in kgs. is made with consumption of yarn in 4 kgs. then the decrease in yield is 0.17% and not 8.33% as mentioned by the A.O. in point No.IV on page no.5. The correct working would be as under:-
= 1,52,721 x 100 = 1,43,018 x 100
1,54,113 1,44,068
= 99.10% = 99.27%
Therefore, the actual decrease in yield is only 0.17%. The appellant has shown yield of 99.1% as compared tio last year of 99.27%. Hence if the decrease in yield of 0.17% is considered then consumption of yarn is more only by 262 kgs which at the rate of Rs.140/- as adopted by the A.O. would only amount to Rs.36,680/-.
In my view, such variation of 0.17% in yield in real situation is normal. The AO has not rejected the books of accounts. It is settled position of law that if the books of accounts are not rejected, the income cannot be estimated. If the books are accepted then only addition in respect of specific defects can be made. Further, as pointed out by the appellant and as stated above, there is a mistake in the calculation of AO. The consumption of yarn in kgs. can only be compared by production of ribbons in kgs. and not metres. As stated above, 1 metre of ribbon of 3mmwidth will use less yarn then a ribbon of 6 mm width, 10 mm, 12 mm etc., I agree with the appellant that the production of ribbon in metres cannot be compared with consumption of yarn in kgs. Both the items must be in kgs. due to different width and single or double finish of the ribbons. Therefore, the calculation given by the appellant in terms of kgs of production of ribbon shows that the yarn consumption is only 5 more b y 262 kgs. as stated above which is a normal variation if the total consumption of 1,54,113 kgs. of yarn is considered. Further thedecrease in GP is only marginal from25.5.7% in the last year to 25.06% in the current year. Even this fall is clear from the assessment order where the AO says that sale prices have fallen by almost 25% compared to last year. In view of these reasons, I agree with the appellant. Therefore, the addition made by the AO. is deleted "
3. Therefore, department is in appeal before us.
The learned DR submitted that the reason for fall in G.P. is that the assessee has shown consumption of yarn on higher side during the year under consideration. The learned D.R. submitted that no consistency in consumption of yarn used and consumption of electricity. The assessee has taken the contention that there was minor variation in electricity from month to month due to the fact that in grey cloth manufacturing is minimum whereas such grey cloth consumed is on higher side. This contention was not accepted by the A.O. on the ground that there was no standard in yarn used in production and consumption of electricity. The assessee did not explain the corroborative evidence in respect of his contention that the process of yarn is consumed is on a higher side. The learned A.O. also noticed that assessee has not manufactured only double face finished ribbon but considerable of quantity of ribbons which was more than that of immediate preceding year. Therefore, the learned CIT (A) is not justified in deleting the same.
4. The learned D.R. relied upon the order of revenue authorities. The learned D.R. submitted that the A.O. has not rejected the books 6 but he has made comparison with previous year data without rejecting the book result u/s.145. Therefore, the CIT(A) is not justified in his action. The learn ed A.R. further submitted that A.O. has not pointed out any grave mistake in accounting or quantitative records maintained and produced by the assessee before the A.O. The A.O. has not rejected the book result on account of non reliability or non acceptability of the accounting system produced by the assessee before the A.O. Therefore, there is no reason for justification for making the addition on the basis of consumption data. Therefore, department's appeal should be dismissed.
5. We have heard the rival contentions of both the parties. We find that there were minor defects in G.P. of 0.51% which is as claimed by the assessee that there was fall in sale price in number of items and A.O. stated that sale price has been increased by 25% compared to last year. The assessee explained that the consumption of yarn is more than last year because during the year under consideration production of double face ribbon was greater than last year. The double face ribbon consumed higher quantity than the single face ribbon. The comparison of consumption of yarn per metre for production cannot give the correct figure because ribbon are of different width like 3 mm, 6 mm, 10 mm, 12mm, 25 mm, 37mm, 50 mm. of one metre ribbon of 3 mm width which is less than one 50 mm metre width therefore, the consumption of yarn per metre of production can never be compared. The A.O. has not pointed out any specific defect and not rejected the books of accounted. Therefore, the books results are accepted. We find that the assessee has tried to submit that A.O. has not rejected the book result and this is settled position of law the income cannot be estimated. If the books are 7 accepted the only addition in respect of specific defect can be made. The consumption of yarn in kg can be compared with production of ribbon in kg and not in metre. We find that production in ribbon in metre cannot be compared with the consumption of yarn in kgs. Therefore,we are of the view that the assessee is able to explain the decrease in G.P. and that is also marginal G.P. Therefore, we are in agreement with the order of the CIT(A) and our interference is no required. In the result, the appeal of the Revenue is dismissed.
Order pronounced in Open Court on / /2010.
(DEEPAK R. SHAH) (D.T. GARASIA)
ACCOUNTANT MEMBER. JUDICIAL MEMBER.
Ahmedabad.
Dated: /02/2010.
S.A.Patki.
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT(Appeals)-
4. The CIT concerned.
5. The DR.,ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad.
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